Wall Street snapped a four-session winning streak on Thursday, with all three benchmarks closing lower after a historic plunge in the stock price of Facebook’s parent company Meta, halting a nascent recovery built on upbeat earnings from other big tech.
The 26.4% wipeout in Meta Platforms, as Facebook’s parent company is now known, erased more than $230 billion in market value, easily the biggest one-day loss in history for a United States company.
A weak revenue outlook for Meta helped drag the stocks of other social media companies including Twitter, Snap and Pinterest lower too.
The tech-focused Nasdaq gave up 3.7%, its biggest loss since September 2020. The S&P 500 fell over 2.4%, while the Dow Jones Industrial Average was down nearly 1.5%.
Big tech stocks such as Alphabet Inc. and Microsoft Corp. fell, as did Amazon.com Inc.
"As we've gotten numbers in recent days, what we're seeing is the delivery of earnings being rewarded or penalized, and if you continue to deliver strong earnings growth, the market will reward that," said Maxwell Grinacoff, U.S. equity & derivatives strategist at BNP Paribas.
"In a rising rate environment, as we progress through the year, we expect to see more divergence between the higher-quality names, such as the megacaps, and lower quality names which are not making any money," he noted.
Financial technology companies saw a second day of selling, after PayPal Holdings Inc.'s disappointing earnings on Tuesday caused investors to question if these firms – which benefited significantly from the pandemic advancing the shift to digital payments – would justify steep valuations in 2022.
PayPal dropped again, as did peers Block Inc., Affirm Holdings Inc. and SoFi Technologies.
Tech stocks have enjoyed a dominant period amid low interest rates, as investors sought out high growth, but with inflation rising and the U.S. Federal Reserve (Fed) signaling an aggressive rate-hike stance to rein it in, money managers are having to adjust portfolios accordingly.
"People are going to start increasing allocations to value stocks, and to do that they will have to sell their growth stocks, even if they are down 15% to 30%," said Jack Murphy, chief investment officer of Easterly Investment Partners.
Communication services was the worst performer of the major S&P 500 sectors on Thursday, weighed by Meta's performance.
One of the few bright spots among its sector constituents was T-Mobile US Inc., which advanced after posting both positive numbers and outlook.
The CBOE volatility index, Wall Street's fear gauge, moved up after hitting a near three-week low in the previous session.
Adding to the market's woes was a second rate hike by the Bank of England (BoE) and a hawkish pivot by the European Central Bank's (ECB) President Christine Lagarde.
Meanwhile, the number of Americans filing new claims for unemployment benefits fell more than expected last week as COVID-19 infections subsided, suggesting that an anticipated slowdown in job growth in January was likely temporary.